Question

What would be the net present value of a microwave oven that costs $173 and will save you $82 a year in time and food away from home? Assume an average return on your savings of 5 percent for 5 years. (Hint: Calculate the present value of the annual savings, then subtract the cost of the microwave.) Use Exhibit 1-D. (Round time value factor to 3 decimal places and final answer to 2 decimal places.) Net present value $

Answer 1

Microwave
Discount rate	0.05
Year	0	1	2	3	4	5
Cash flow stream	-173	82	82	82	82	82
Discounting factor	1	1.05	1.1025	1.157625	1.2155063	1.276282
Discounted cash flows project	-173	78.09524	74.37642	70.83468	67.461603	64.24915
NPV = Sum of discounted cash flows
NPV Microwave =	182.017
Where
Discounting factor =	(1 + discount rate)^(Corresponding period in years)
Discounted Cashflow=	Cash flow stream/discounting factor